Further cuts to local government spending to come, but few details yet

This article was originally published in the Local Government Chronicle. Read the original article.

The Chancellor has announced £3 billion of cuts to departmental spending this year, including £230 million from the budget of the Department for Communities and Local Government (DCLG) and £200 million from the public health budget, which is partly delivered by local government.

These new measures are small relative to the size of spending cuts required to meet the government’s fiscal targets, and many of them do not reflect permanent spending reductions. Last week’s announcement tells us little about the cuts to come and the extent to which these will fall on local authorities.

The Prime Minister is fond of saying that the planned spending cuts amount to two years of “saving £1 a year in every £100 that the government spend”. This is often presented as a relatively easy task. But the task appears much more difficult when we factor in that some spending areas – including government debt and public sector and state pensions – are set to increase, meaning that cuts to the other areas of spending will need to be larger.

As in the last parliament, the majority of spending cuts will fall on departmental spending. And commitments to protect spending on the NHS, schools and overseas aid mean that cuts to ‘unprotected’ departments are likely to be significant. Despite the talk of “£1 in every £100”, unprotected departments look set to see cuts of around 15% (or £30 billion) between this year and 2018–19, with day-to-day spending likely to be cut by about a fifth while investment spending will grow.

These planned cuts may well be harder to achieve than those that have already been made, not least because any efficiency savings that were easy to identify and to deliver will presumably already have been made.

The ‘savings’ announced earlier this month go only a small way to achieving the required £30 billion in cuts to unprotected departments. Many of the measures announced were not cuts at all. Some were temporary cuts, by delaying expenditure to future years – for example, the Ministry of Justice saving £105 million by delaying capital projects. Some were asset sales, which (assuming the assets are sold for what they are worth) generate no improvement to the UK’s underlying financial position. Nor will they help the government achieve the cuts required to annual expenditure because they cannot be repeated in future years. Planned asset sales include an unspecified amount from the DCLG budget to come from selling local government land for housing developments. The actual value of spending cuts announced last week is therefore far smaller than the £3 billion headline.

What does all of this mean for local authorities? The new cuts announced to the DCLG budget will not be passed on to local governments this year – DCLG cannot do so without re-opening the local government finance settlement they agreed in February. However, the cuts to the public health budget will be passed on to local governments through reductions in grants from the Department of Health. The new announcement, therefore, slightly increases the cut to spending that local governments need to implement this year.

The newly announced cuts do not do much to change what we already knew about the prospects for further cuts to local government spending beyond this year. Day-to-day spending on local government services was cut at a similar rate over the last parliament as spending on other unprotected departments: we calculate that local government spending fell by 20% in real terms between 2009–10 and 2014–15. If, over the next three years, local authorities were again to see the same cut to day-to-day spending as the average expected for unprotected departments (around a fifth), the total cut to local government spending over the whole consolidation period would be approaching 40%.

Another outstanding issue is how these cuts will be spread across local authorities. Over the last parliament the most deprived local authorities saw the largest average cuts. The current funding system is likely to result in the same thing happening again when future cuts are distributed, unless the government reforms the system for allocating grants.

In sum, the Chancellor’s announcement tells us little we did not already know about the prospects for spending on public services over the next few years and for local authorities in particular. It leaves many important questions to be answered in the next spending review.